Germany’s trade balance for July was €14.7 billion, lower than the expected €15.3 billion, according to Destatis. In June, the balance was slightly better at €14.9 billion. Exports from Germany dropped by 0.6% compared to the previous month, which had seen a rise of 0.8%. Imports also dipped a little by 0.1%, down from a 4.2% increase the month before. The decrease in exports greatly affected trade with the United States, Germany’s main trading partner. Exports to the US fell by 7.9% from June, totaling €11.1 billion and reaching the lowest level since December 2021. This shortfall in trade is a strong indicator of a slowing German economy. The 7.9% decline in exports to the US is particularly concerning, suggesting that recent trade tensions are having an impact. We shouldn’t view this as an isolated incident, but rather as a potential beginning of a downward trend. This information lines up with other recent weak economic indicators. The latest S&P Global/HCOB manufacturing PMI for Germany in August 2025 was 48.5, marking the second month of contraction. This signals that the weakness is widespread across the industrial sector, not only limited to trade. In the currency market, this news puts pressure on the EUR/USD pair. It may be wise to consider buying euro put options that expire in October and November, anticipating a potential drop towards the 1.0500 level. The market may now expect a softer approach from the European Central Bank. The German DAX index, which includes many large exporters, looks especially weak. Companies like Volkswagen and Siemens will feel the effects of declining foreign demand and ongoing tariff negotiations between Washington and Brussels. We suggest buying DAX puts, similar to a pattern we observed in 2018 when US tariff threats led to a significant drop in German stocks. The key issue continues to be the tariff discussions, which have been a consistent challenge all summer. Reports from late August 2025 mentioned that talks stalled over standards for the automotive and chemical industries, directly affecting Germany’s vital export sectors. This political uncertainty is unlikely to resolve quickly, supporting a bearish outlook for the upcoming weeks. On the flip side, this economic weakness may be good news for German government debt. A slowing economy reduces the likelihood of the ECB adopting a tough policy stance, a sentiment echoed by President Lagarde’s cautious comments last month. We see a chance to invest in German Bund futures, betting that yields will fall as fears of a slowdown increase.

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